Jan. 7 (Bloomberg) -- Yields on lira debt rose to the
highest in almost seven weeks as Turkey prepared for its biggest
month of debt sales since November amid concern the Federal
Reserve will end its bond-buying program this year.

Turkey plans to borrow 11.6 billion liras ($6.5 billion)
this month in five auctions, starting with the sale of four-year
notes and 10-year inflation-linked bonds today and benchmark
two-year debt tomorrow, according to a Treasury statement Dec.
31. Two-year yields jumped to as high as 6.44 percent last week,
the highest since Nov. 19.

The world’s biggest bond rally among major emerging markets
in 2012 may peter out as Fed minutes of its December meeting
released Jan. 3 showed policy makers will probably end their $85
billion in monthly bond purchases, known as quantitative easing,
this year. Yields rose earlier after a report that day showed a
smaller-than-expected slowdown in Turkish inflation in December.

“The Treasury is unlucky that the debt sales coincided
with the developments in the U.S.,” Ugur Kucuk, a fixed-income
strategist at Is Investment Securities in Istanbul, Turkey’s
biggest brokerage, said in e-mailed comments on Jan. 4. Turkey
will have to pay more at tomorrow’s auction of two-year debt, he
said.

Borrowing Plans

The Treasury plans to sell 34.6 billion liras of debt this
quarter, up 89 percent from the last three months of 2012.
Tomorrow’s sale of two-year securities comes after the
government paid 5.77 percent to raise 960 million liras for
similar-maturity debt on Dec. 11.

The yield on two-year benchmark notes rose as much as 16
basis points, or 0.16 percentage point, before ending the week
at 6.36 percent, according to data from Turk Ekonomi Bankasi AS.
Yields dropped 483 basis points last year, the biggest decline
among 20 emerging markets as foreign investors bought a record
$16.2 billion of the country’s bonds.

“Participation of foreign investors will be crucial in the
auctions,” Murat Yardimci, head of trading at ING Bank AS in
Istanbul, said in e-mailed comments Jan. 4.

Turkey is also planning to sell bonds due in 2022 tomorrow
and 15-month zero-coupon bonds on Jan. 15, according to a
statement by the Treasury Dec. 31.

The auctions come after the country’s economic growth
slowed to 1.6 percent in the third quarter, the lowest level
since a 2009 recession. The central bank lowered the benchmark
repurchase rate last month by 25 basis points to 5.5 percent.

The two-year yield jumped 12 basis points, the most in
three months, on Jan. 3 as a report from the statistics office
showed inflation slowed to 6.2 percent in December. That
exceeded the 6 percent median estimate in a survey of economists
by Bloomberg.

Fed Minutes

“Risk-reward for buying Turkish local bonds has clearly
improved following the selloff in the bond market after the
December” inflation data and Fed minutes, Esther Law, a
director of emerging-market strategy at Societe Generale SA in
London, wrote in an e-mail Jan. 4. “We expect to see further
upside in yield ahead of the heavy issuance.”

The lira climbed less than 0.1 percent to 1.7821 per dollar
at 11:44 a.m. in Istanbul. The Turkish currency appreciated 6
percent last year, the largest gain in emerging Europe after the
Polish zloty and the Hungarian forint.

The extra yield investors demand to hold Turkey’s dollar-denominated sovereign bonds rather than U.S. Treasuries fell
five basis points to 160 today, JPMorgan Chase & Co.’s EMBI
Global index showed. That compares with the average 246 for
emerging markets.

Default Risk

Credit-default swaps on Turkey were unchanged at 117. That
compares with 121 for Russia and 76 for Poland. Rising prices
show deteriorating perceptions of a borrower’s creditworthiness.
The contracts pay the buyer face value in exchange for the
underlying securities or cash equivalent should a government or
company fail to adhere to its debt agreements.

“I had been positive” on the auctions until the Fed
announcement, Bugra Bilgi, a hedge-fund manager at Garanti Asset
Management in Istanbul, said in e-mailed comments Jan. 4. Bilgi
predicted the Treasury will sell benchmark debt at between 6.40
and 6.50 percent. “The market somewhat turned sour after the
Fed statement,” he said.